Formula for determining business costs not realistic, say critics and operators Prolonged friction between labour unions and bus operators and deteriorating bus services could result if the government pushes ahead with its proposed public transport fare adjustment policy, analysts have warned. The government and transport operators are still negotiating the proposed system. But transport consultants say the version unveiled by the Transport Department to Legco last month may be worse than the present system, where fare caps are based largely on profitability. The proposed formula, devised by government economists, holds that fare changes should equal an operator's change in costs, minus changes in productivity. Fare adjustments would be capped at about 10 per cent. But transport operators, and bus companies in particular, are rankled by how the formula determines the price of inputs, or the cost of doing business, which they say is not representative of reality. One of the key factors in determining fares, according to the Transport Department document presented to the Legislative Council, would be inflation, as measured by the Core Consumer Price Index (CCPI). But one transport consultant, who did not want to be named because he works for the government, said: 'In no way does CCPI really reflect the cost of labour for the bus operators. 'If you take apart CCPI, what's made deflation so large in Hong Kong over the past couple of years has been the declining price of property. But if you look at the salaries of bus drivers, they've hardly gone down at all.' He said labour costs made up more than 50 per cent of the operating costs of the three major bus operators, while fuel constituted only about 10 per cent. For the rail companies, labour makes up about 30 per cent of operating costs. 'What's wrong with the existing system as it stands?' said Geoff Rogers, director of Sustainable Transport Planning. 'Over the next few years, as the rail companies expand, the bus operators are going to see a decrease in the number of riders. 'It is already happening to Kowloon Motor Bus on the Tseung Kwan O routes as a result of the new Mass Transit Railway line there. 'The profitability index is transparent and plain. Are the bus companies making money or not making money?' At present, the bus operators are allowed to earn a 13 per cent rate of return on their investment, with excess profits spilled over to a development fund that can be used to fund fare concessions, as KMB is doing with its announced fare concessions to begin next month. 'The government's proposal is about politics and what the public wants, rather than a good fare mechanism,' Mr Rogers said. Architects of the proposed system acknowledged that it was 'not the best system', but rather the 'best possible' given the political realities.